Buying or LEASING -- what % of income?

[mafibisha]

I know there have been many threads about buying vs leasing a car. Its that time for us again, time for a new vehicle.

I hate the process because DH and I always disagree. We'd almost decided to buy a newer used van, until we started pricing and doing the deals. Buying used is actually more than some of the leases. And yet, I know you have nothing at the end of the lease!

Also, apparently because of the clunkers program, used cars are more expensive now? HUH?? Because they had to be destroyed? Have you heard of that or is it just another sales tactic?

Also, what percentage of your income should be spent on cars or transportation? Is there a suggested %, similar to spending the 33 - 40% (I think) on housing?

Or, what do YOU think is a reasonable payment. Yes, I totally know its all relative. But I'm just askin', thanks

Any input appreciated because again, this is a terrible decision for us!!

 

[bumbershoot]

When I first leased a car, the payment was 199/month (plus tax). That was great. Though I was making very little, so it was a solid percent of my income.

Right now our car payment (used car, naaaaaasty interest rate b/c DH had just about "no" or a neutral credit rating...everything is in my name, nothing in his) is almost 340. That's too dang much. Even though DH makes much more than I was when I leased that first car.

Buying used is actually more than some of the leases. And yet, I know you have nothing at the end of the lease!

Well, you're turning in the "cheaper" car in 2-4 years. They get it back, and get to sell it again! Of course they won't charge you a huge amount per month! They are also hoping you'll like it, and want to buy a car whose history you know, and will be willing to pay scads of money for it then.

With the used car, you actually end up with it at the end of your loan period. They don't get it back.


The Clunkers thing...I had heard that it could raise the price of used cars, because it lowered the number of used cars out there. Supply and demand. Lower the supply, increases demand, increases costs.


Leasing is less expensive in the short term. But at the end of the lease, you'll have paid all that money, and now you get to pay MORE money. Either to lease something new (by the way, if that ends up being you? pay the turn-in fees right up front. do NOT NOT NOT just let the dealer roll over those fees into your new lease!!!!), to buy something else, or to buy the car you'd been leasing, that's more money.

Getting a loan for a car now is a higher monthly payment, but in the long run, if you don't just run out and sell it to buy a new one once you're done with the loan, it's cheaper.


Only you know what percentage works for you. Why not sit down and talk about some numbers? Would 199 per month be great? How about 450? How about 300? Then multiply what feels OK, and subtract the amount of tax that would be in that total, to see the price that feels OK to you. Not that this exercise will tell you exactly what to get, but it might be good just to see what's OK for you guys.

I personally leased 3 cars over the course of 12 years. I loved leasing for 10 of those years. I turned in the first car because it had "too many bad memories". I turned in the second because...I have no idea, it was an even worse decision than turning in the first car. I turned in the third because we were so dang tired of paying so much money, carrying such high insurance, and having to watch out mileages! Then we bought a used car. I like this better, even though we got an awful loan that we're working to pay off asap.

 

[mafibisha]

When I first leased a car, the payment was 199/month (plus tax). That was great. Though I was making very little, so it was a solid percent of my income.

Right now our car payment (used car, naaaaaasty interest rate b/c DH had just about "no" or a neutral credit rating...everything is in my name, nothing in his) is almost 340. That's too dang much. Even though DH makes much more than I was when I leased that first car.




Well, you're turning in the "cheaper" car in 2-4 years. They get it back, and get to sell it again! Of course they won't charge you a huge amount per month! They are also hoping you'll like it, and want to buy a car whose history you know, and will be willing to pay scads of money for it then.

With the used car, you actually end up with it at the end of your loan period. They don't get it back.


The Clunkers thing...I had heard that it could raise the price of used cars, because it lowered the number of used cars out there. Supply and demand. Lower the supply, increases demand, increases costs.


Leasing is less expensive in the short term. But at the end of the lease, you'll have paid all that money, and now you get to pay MORE money. Either to lease something new (by the way, if that ends up being you? pay the turn-in fees right up front. do NOT NOT NOT just let the dealer roll over those fees into your new lease!!!!), to buy something else, or to buy the car you'd been leasing, that's more money.

Getting a loan for a car now is a higher monthly payment, but in the long run, if you don't just run out and sell it to buy a new one once you're done with the loan, it's cheaper.


Only you know what percentage works for you. Why not sit down and talk about some numbers? Would 199 per month be great? How about 450? How about 300? Then multiply what feels OK, and subtract the amount of tax that would be in that total, to see the price that feels OK to you. Not that this exercise will tell you exactly what to get, but it might be good just to see what's OK for you guys.

I personally leased 3 cars over the course of 12 years. I loved leasing for 10 of those years. I turned in the first car because it had "too many bad memories". I turned in the second because...I have no idea, it was an even worse decision than turning in the first car. I turned in the third because we were so dang tired of paying so much money, carrying such high insurance, and having to watch out mileages! Then we bought a used car. I like this better, even though we got an awful loan that we're working to pay off asap.

THanks, makes sense to me.

So we either:
pay less $$ each month with a lease, but get nothing at the end of the lease.

Or pay more each month for a used car, and end up with something - although DH says the *something* we end up with, is an even older, *VERY* used car that will inevitably need lot$ of repair$ that are not covered because it's used. And it gets older each day, ack!

His philosophy is when you lease, you never pay for repairs, always drive a *safe* car and just realize you'll always have a car payment. YUCK, I don't like that either! But I sure don't want to pay big bucks on a 2-3 year old car, pay it off, and then have a 6 year old car that will start needing lot$ of work! ($$$)

Dave Ramsey says not to buy into that, but he isn't working for a living like the majority of Americans are!

So whats a person to do!! They get you either way!!

 

[MrsPete]

Also, what percentage of your income should be spent on cars or transportation? Is there a suggested %, similar to spending the 33 - 40% (I think) on housing?

This isn't a question that you can answer as a stand-alone item. You have to look at it as a portion of your total budget.

If you want to be comfortable financially and be able to save, your total must-haves (house, car, insurance, groceries, loans that you already owe, etc.) should total no more than 50% of your take-home pay. That allows you to put aside money for long-term savings (retirement, college) and short-term savings (vacation, new lawn mower), and it allows you a comfortable amount for wants.

 

[dawson5]

What other car(s) do you have?

I just talked my hubby into not getting another car yet. He lucked into a car last year, fixed it and drove it for the summer (convertible). His lease ended late January. He is now driving my car and I am a SAHM, don't go anywhere except schools and store. We're sitting on the payment and putting it away, plus saving on insurance. If he would agree to something like that, could you possibly buy a clunker, make a payment into a savings account and use that for a down? There are still some clunkers out there, some of them didn't meet the criteria for cash for clunkers.

There are bills related to leasing. We have always had to pay for oil changes and general maintenance work that was not covered under a warranty, deductibles for warranty work. Then when you turn in, there is the excess wear & tear, which can get hefty if you were rough with it. Check around on the turn in fees, we have only had one.

I hate paying on a depreciating item but there are some incentives out there to buy new. Have you looked into those?

 

[mafibisha]

Here's the scenario and I hope you can help - so confused!!!

Car #1 :
Lease for 3 years at $492 - approx. paying $18,000 - then
New policy for GMAC: at the end of lease, residual has been lowered (on all cars) to make buying a better option at end of lease.
So purchase price would be $9,000 at end of lease.

Car # 2:
Used with only 16,000 MILES. Price is $18,500 - monthly of $335 for 6 years with balance of 36 mth warranty included.

So which is a better deal?

HELP PLEASE!! So confused!!

TIA!!

 

[wdwfan16]

Here's the scenario and I hope you can help - so confused!!!

Car #1 :
Lease for 3 years at $492 - approx. paying $18,000 - then
New policy for GMAC: at the end of lease, residual has been lowered (on all cars) to make buying a better option at end of lease.
So purchase price would be $9,000 at end of lease.

Car # 2:
Used with only 16,000 MILES. Price is $18,500 - monthly of $335 for 6 years with balance of 36 mth warranty included.

So which is a better deal?

HELP PLEASE!! So confused!!

TIA!!

For me I would do option #3.

Car # 2:
Used with only 16,000 MILES. Price is $18,500 - with 3 or 4 year loan with balance of 36 mth warranty included.

Since you can make a $492 monthly payment with the lease why not take the loan out with the same payment. You would own this vehicle in the same time as you had the lease and you would be $9K ahead since you do not have to buy the car.

 

[mafibisha]

For me I would do option #3.

Car # 2:
Used with only 16,000 MILES. Price is $18,500 - with 3 or 4 year loan with balance of 36 mth warranty included.

Since you can make a $492 monthly payment with the lease why not take the loan out with the same payment. You would own this vehicle in the same time as you had the lease and you would be $9K ahead since you do not have to buy the car.

Thats a good idea. However, part of buying for 6 yrs is to free up more monthly cash. The used car really IS a good one, exactly like the new models, so feel we're getting a new car at a used car price. Still, while I don't want to lease, I don't like this either. Arrrrgh, I hate doing the car thing!!!

 

[Ka' eo]

Thats a good idea. However, part of buying for 6 yrs is to free up more monthly cash. The used car really IS a good one, exactly like the new models, so feel we're getting a new car at a used car price. Still, while I don't want to lease, I don't like this either. Arrrrgh, I hate doing the car thing!!!

Get a used car. The depreciation on a new car is something like 25% the first year. You spend much more in road/excise tax.

Try to spend as much as you can per month and buy the used car. Interest is like throwing money away, just like a new car.

We bought a new car in 2004. It is still doing great. We take meticulous care of it and use it for all our road trips.

We bought a used saab from a family member for $2k. It is an awesome car and we've had it for at least 5 years. It is highly dependable, gets 30mpg and while the parts are expensive, we expect to drive it for at least another 5 years.

New cars are only a deal if the manufacturers were giving them away like last summer. That would have been the time, and also the cash for clunkers program. We do live in the north and have kids, so obviously safety and reliability are important. But we are trying to hold onto our "new" family car as long as we can....

We are now working on putting cash away to buy either a new car or low mileage used car for when we have to.

Good luck! I love new cars and have been tempted a few times to cave and splurge, but not having the car payment allowed us to buy a vacation home. I'd rather have that!

 

[dawson5]

with that used one, can you extend the warranty? We bought my car used and extended the warranty to 10 yrs or a certain mileage (can't remember off the top of my head). I have a Volvo, I know parts & labor are expensive, this was a no-brainer for us. Has paid for itself on the few warranty claims we've had so far.

The lease seems to only work out for us as a write-off on taxes. Even then, the cost is higher than the savings.

I really don't like to buy new but are there incentives if you bought instead of leased? I know there were some nice deals when hubby was thinking about his lease end.

 

[MiniGirl]

For our family, this is a no-brainer. We'd buy the used car and pay it off as soon as possible. We tend to keep our cars for much longer than the lease agreements though.

It kind of sounds as if your dh is leaning towards leasing a car. Does he like having a new car every few years. I know several people who do. Even if they were to get a great deal on a new or used car, they wouldn't drive it for more than 3 years. For them, it makes more sense to lease. If your dh is like that and wouldn't keep the car after it is paid for, than leasing might be the way to go.

 

[scrapquitler]

we always buy new, and we drive it until it has about 125K miles on it. We always buy with whatever the lowest % payment is (we have bought 60 months 0%, we've bought 1.9% for 24 months). We always buy the extended warranty that goes to 100K miles from the manufacturer. Once the car is paid off, we keep some money in savings for repairs and upkeep that are not covered by the warranty (we did once have to pay $2000 in transmission work), but it still ends up way less than a car payment.

Leases are often a bad deal because at the end they charge you for excess mileage or damages (scratches, interior damage, etc). If you KNOW you aren't going to drive excessive mileage and you aren't likely to damage the car, then maybe not such a bad idea, but for us, we drive a LOT of miles so it wouldn't be a good plan.

In our case, we currently own 3 vehicles: 2002 Ford Windstar with 120K miles on it, a 2000 Ford Taurus with 130K miles on it, and a 2007 Subaru Outback with 35K miles on it. No car payments. We do regular maintenance on all of them and in the last year we paid approx. $1500 in repairs (an alternator in the van, brakes on the Taurus and something else minor)....all of the cars are paid off. We figure we won't need to buy another car for probably at least 2 years (we won't replace the third car when it meets it's demise) or until the Taurus and the Windstar are dead dead.

 

[SarahKate]

Leasing's a decent option if you fall into certain criteria. If you know for sure you'll never want to keep a car til it's paid off, that's one big one. Of course, we ALL know it's financially better to keep cars til after they're paid off but lots of us don't do that.

If you can fall under their mileage requirement, which is typically 12k a year. If you know for sure you can't stay under that, then you can buy some miles at the beginning of the lease, CHEAPER than if you go over and have to pay excess mileage at the end.

As far as wear and tear goes, the companies know that if someone is turning in a car after 36 months, it's NOT going to be perfect. Some wear and tear is inevitable. I don't know how much the companies differ, but when I leased an Odyssey, they had a formula as far as how many dings each panel could have, how big they could be etc. My van had a fair number of dings, the rugs were VERY dirty. All in all, the van was in pretty good shape but definitely had some wear in tear. We didn't have to pay a DIME when we turned in our van, no wear and tear, no end of lease fee, and we got all of our security deposit back.

The most important thing about a lease is just knowing all your facts beforehand. You are essentially paying to drive the car for that period of time, and you're paying the depreciation not the actual value of the car. That's why some people think they're getting screwed at the end of the lease when the residual is so much.

A smart way to go about a lease is to take that extra money you're not paying a month in higher car payments and sock it away.

As for the previous post about a 459 lease payment for a 18k vehicle, that's a ridiculous payment. My Odyssey payment was 321/month for a 28k van! And it would have been around 259/month had I not been upside down on my trade-in (Grand Caravan). In my opinion, a lease allows me to drive MORE car for a much lower payment.

 

[MrsPete]

Here's the scenario and I hope you can help - so confused!!!

Car #1 :
Lease for 3 years at $492 - approx. paying $18,000 - then
New policy for GMAC: at the end of lease, residual has been lowered (on all cars) to make buying a better option at end of lease.
So purchase price would be $9,000 at end of lease.

Car # 2:
Used with only 16,000 MILES. Price is $18,500 - monthly of $335 for 6 years with balance of 36 mth warranty included.

So which is a better deal?

HELP PLEASE!! So confused!!

TIA!!

You have to think about the LONG TERM OWNERSHIP COST of the car, not just the payment.

Owning Car #1 for 3 years would cost you $17,712 -- payment x 36
Owning Car #1 for 4 years would cost you $26,712 -- sum of payments + buy lease buy out
Owning Car #1 for 5 years would cost you that same $26,712 -- no more additional money, and if it's well cared for, the car should still be going strong.

So if you keep it for 6 years, Car #1 would cost you $4,452/year to lease, then buy.


Owning Car #2 for 3 years would cost you $12,060 -- payment x 36
Owning Car #2 for 4 years would cost you $16,080
Owning Car #2 for 5 years would cost you $20,010
Owning Car #2 for 6 years would cost you $24,120

So if you keep it for 6 years, Car #2 would cost you $4,020/year to own. The other benefit here, of course, is that if you want to get rid of it earlier, you have the choice of selling or trading it in.

I see several red flags here:

You didn't mention the interest rate. That matters a great deal in the long run, and I'm figuring it's around 9%. Folks who've financed cars recently, is that good? I don't think so, but I"m rather out of the loop on such things.

Second, six years is an awfully long time to finance a car. If you have to finance it that long, I think it may be "too much car" for your finances. Reducing this to only five years (still an awfully long loan for a car) would increase the payment by only $49, and it would cut a year off the loan.

Finally, you don't mention how this fits into your whole budget. You have to consider what you already owe and are obligated to pay before you can decide what you can afford. For example, if you already have a rather maxed-out mortgage, then you have to skimp on the car. If you live with your parents, who need you to provide care for them and who don't charge you anything, then you are probably free to spend as much as you like on the car. (Trying for two extremes there.) But you have to consider what else you're paying -- not JUST the car.

 

[lolakat]

To me leasing is a luxury. It is basically a way to have a new car all the time. I've never seen a lease offer that was a frugal financial move. If you like having a new car and can afford constant and relatively expensive car payments go for it. If not I think buying the used car is the better move.

For me I have had 2 cars. The first I got new (as a 16th birthday present)and drove for 160k miles over 11 years. It was payed off after 5 years and I was able to put that money aside in a car repair/down payment fund. My second car was a used 5 yr old Nissan with 40,000 miles. I bought it cash with the money I had saved over the six years of no car payments. I have had it for 4 years and it has had only minor repair costs. I am paying into a new car repair/down payment fund for when this car needs to be replaced. With this method I will hopefully never have a car payment again, plus my insurance costs are less.

Good luck with whatever you choose.

 

[aggielawyer]

My first question is whether you really need a new/new-to-you car? Is it a need or a want?

 

[joliesmom]

According to a financial special that Oprah had on years ago here's the percentages of your income that were given per month:
House= 35%
Life= 25%
Auto= 15%
Debt= 15%
Savings= 10%

 

[indimom]

and take care of it, it should last much longer than six years.
We've had our car for 10 years. It has 135,000 miles on it. It is still going strong. We did just put some repairs into it for a total of $950, but we hadn't put a dime into this car (other than oil changes, new tires) since we paid it off 6 years ago.

 

[DISdreamin']

According to a financial special that Oprah had on years ago here's the percentages of your income that were given:
House= 35%
Life= 25%
Auto= 15%
Debt= 15%
Savings= 10%

Holy $#@%!!! I see the numbers, but that seems awfully high to me! I'm sure it is a reasonable number, but many...I wouldn't want to be spending that much of my income on a vehicle. Buy a good one, take care of it, keep it forever, avoid permanent car payments.

 

[mafibisha]

OP here. Appreciate the input all.

Of course, we ALL know it's financially better to keep cars til after they're paid off but lots of us don't do that.

As for the previous post about a 459 lease payment for a 18k vehicle, that's a ridiculous payment. My Odyssey payment was 321/month for a 28k van! And it would have been around 259/month had I not been upside down on my trade-in (Grand Caravan). In my opinion, a lease allows me to drive MORE car for a much lower payment.

For years we leased both vehicles, but much was reimbursed by our companies. Some years they were essentially paid for

For your Odyssey payment, how much did you have to put down on it? If we do the $400+, its with nothing down. Also, at least half of this payment will be reimbursed.

You didn't mention the interest rate. That matters a great deal in the long run, and I'm figuring it's around 9%. Folks who've financed cars recently, is that good? I don't think so, but I"m rather out of the loop on such things.

Would never do it at 9%, no way. The interest rate is about 4.75%. Again, much of the payment will be reimbursed, actually more of the % of it will be covered since it will be smaller payment per month. It will also *free* up additional cash each month.